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Superannuation shake up

Changes announced in the 2016 Federal Budget will see the shutdown or conversion of tens of thousands of transition to retirement pensions (TTRPs) into full pensions.

An estimated 550,000 TTRPs are currently in place around Australia, used mainly by taxpayers in their late 50s and early 60s who are reducing their work hours, or by low-income earners who are trying to boost their super balances before retirement.

However, many are also used as a tax minimisation strategy by high income earners, as they enable workers over the age of 55 to access their super while still working.

To do this, individuals must salary sacrifice a portion of their income to a tax-free transition pension, which allows them to continue contributing to their super while paying 15 per cent super contributions tax. To supplement their take-home pay, individuals draw income from their TTRP account.

High income earners who don’t need extra cash withdraw money from their pension and pump it straight back in.

Under the Budget’s new rules, earnings generated by transition retirement pensions will be taxed at 15 per cent, rather than being tax-free.

High income earners who transfer money withdrawn from their TTRP directly back into superannuation will now be subject to a $500,000 lifetime limit on after-tax contributions.  

The changes mean that TTRPs would only be useful for those who require extra cash while they reduce working hour numbers of for those who can make larger contributions to super than they might otherwise.

Posted on 12 May '16 by , under Super.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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